What’s more important to you: white-glove service or financial safety? From a CFO’s point of view, a higher level of personal service is just not worth the risk of losing your money.
Many startups and VCs liked the level of service offered by Silicon Valley Bank and similar financial institutions. SVB was also very accommodating in terms of giving loans and working with startups. Many companies made deposits at SVB in order to get venture debt, plus there was a time when startups felt they needed the cachet of banking there.
Take a step back, and check each financial decision you make to see what’s really important to you — and what’s true about the bank or vendor you are choosing.
It was always riskier to have your money at a small niche regional bank than at one of the big banks. JP Morgan and Bank of America have much less risk. Their balance sheets are generally healthier, and they’re more diversified than small banks.
You’re likely rethinking your banking relationship about now, and there are a number of things to consider — some more important than others. Factor in as much as you can when you’re choosing whom to bank with and whom to build a relationship with.
To start, ask yourself these three questions:
1. How safe is my money?
This should be the first concern. If you’re giving your money to a bank for safekeeping, how much do you trust this bank to look after it? One of the best ways to determine financial security is by looking at the bank’s balance sheet or understanding the business model that drives their balance sheet. If they don’t have the right asset and liability management, that’s when situations such as SVB happen. I can’t overstate this: It wasn’t that hard to see SVB was a lot riskier than other banks, because its customers were so non-diversified.
2. How much does my money earn?
How much you earn on your money is a key question for any bank you’re choosing. You’re giving them money, and you want to know how much you’re going to earn on that. Often, the larger banks will pay less. That may point you toward niche or regional banks, which may well be the right decision for you. But, again, it’s about balancing all the factors.
Think about the interest rates you earn and the terms of any loans you take, whether that’s overdraft or an actual loan or venture debt. Certain banks won’t even offer venture debt, which may not be so appealing to your startup. Certain banks might offer some sort of overdraft more easily than others. SVB was well-placed, because it did offer venture debt, it did have better terms around its accounts, and its deposit accounts were suitable for startups.
3. How easily can I access my money?
For all the things you want to do with your bank — whether it’s making payments or depositing checks or having access to mobile banking or being able to go into a branch, if that’s important to you. At the end of the day, you don’t want a banking setup that’s going to be an impediment to your actual business growth and operations. It’s got to feel aligned with the kinds of things you need.
For help making decisions about your financial institutions, please reach out to me. I’m happy to help.